UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



[x]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934


      For the quarterly period ended    September 30, 1998
                                    --------------------------------------------


                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     For the transition period from ______________ to_____________
     Commission file number  0-13356
                           ---------


                        MCNEIL REAL ESTATE FUND XXI, L.P.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)




         California                          33-0030615
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer
incorporation or organization)               Identification No.)




             13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240
--------------------------------------------------------------------------------
               (Address of principal executive offices) (Zip code)



Registrant's telephone number, including area code        (972) 448-5800
                                                   -----------------------------




Indicate  by check  mark  whether  the  registrant,  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months and (2) has been  subject to such  filing
requirements for the past 90 days. Yes X No
                                      ---  ---
<PAGE>
                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
-------  --------------------

                        MCNEIL REAL ESTATE FUND XXI, L.P.

                                 BALANCE SHEETS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                         September 30,          December 31,
                                                                             1998                   1997
                                                                         -------------         -------------
ASSETS
------

Real estate investments:
<S>                                                                      <C>                  <C>         
   Land .........................................................        $  1,842,544         $  3,192,923
   Buildings and improvements ...................................          22,275,088           30,048,514
                                                                         ------------         ------------
                                                                           24,117,632           33,241,437
   Less:  Accumulated depreciation and amortization .............         (12,302,036)         (16,177,771)
                                                                         ------------         ------------
                                                                           11,815,596           17,063,666

Asset held for sale .............................................                  --            2,795,988

Cash and cash equivalents .......................................           1,348,027            1,817,585
Cash segregated for security deposits ...........................             200,690              176,258
Accounts receivable .............................................              52,796              229,435
Escrow deposits .................................................             474,094              558,752
Deferred borrowing costs, net of accumulated amortiz-
   ation of $239,483 and $218,067 at September 30, 1998
   and December 31, 1997, respectively ..........................             321,446              368,334
Prepaid expenses and other assets ...............................              28,222               53,944
                                                                         ------------         ------------
                                                                         $ 14,240,871         $ 23,063,962
                                                                         ============         ============

LIABILITIES AND PARTNERS' DEFICIT
---------------------------------

Mortgage notes payable, net .....................................        $ 12,421,259         $ 18,534,503
Mortgage notes payable - affiliate ..............................                  --            3,730,076
Accounts payable and accrued expenses ...........................             146,634              398,815
Accrued property taxes ..........................................             367,241              447,269
Payable to affiliates ...........................................           5,340,323            4,862,973
Advances from affiliates ........................................                  --              794,981
Security deposits and deferred rental revenue ...................             178,128              194,927
                                                                         ------------         ------------
                                                                           18,453,585           28,963,544
                                                                         ------------         ------------
Partners' deficit:
 Limited partners - 50,000 Units authorized; 46,948 and
   47,086 Units outstanding at September 30, 1998 and
   December 31,  1997, respectively  (24,863 Current
   Income Units and 22,085 Growth/Shelter Units out-
   standing at September 30, 1998 and 24,906 Current
   Income  Units and 22,180 Growth/Shelter Units
   outstanding at December 31,1997) .............................          (3,852,975)          (5,522,974)
   General Partner ..............................................            (359,739)            (376,608)
                                                                         ------------         ------------
                                                                           (4,212,714)          (5,899,582)
                                                                         ------------         ------------
                                                                         $ 14,240,871         $ 23,063,962
                                                                         ============         ============
</TABLE>

The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                    Three Months Ended                     Nine Months Ended
                                                       September 30,                         September 30,
                                              -------------------------------         -------------------------------
                                                  1998                1997                1998                1997
                                              -----------         -----------         -----------         -----------
Revenue:
<S>                                           <C>                 <C>                 <C>                 <C>        
   Rental revenue ....................        $ 1,292,514         $ 1,633,807         $ 4,394,825         $ 4,855,619
   Interest ..........................             14,508              23,272              47,420              61,513
   Gain on involuntary
     conversion ......................                 --              39,846                  --              66,655
   Gain on sale of real estate .......                 --                  --             863,350                  --
                                              -----------         -----------         -----------         -----------
     Total revenue ...................          1,307,022           1,696,925           5,305,595           4,983,787
                                              -----------         -----------         -----------         -----------

Expenses:
   Interest ..........................            281,497             483,810           1,092,453           1,503,455
   Interest - affiliates .............                 --              30,579             137,371              90,537
   Depreciation and
     amortization ....................            309,064             372,320           1,048,140           1,125,644
   Property taxes ....................            105,126             135,339             357,424             406,017
   Personnel costs ...................            195,270             214,682             580,916             596,134
   Utilities .........................            103,234             123,216             326,160             334,780
   Repairs and maintenance ...........            197,069             191,082             560,181             581,204
   Property management
     fees - affiliates ...............             63,456              85,888             228,479             252,172
   Other property operating
     expenses ........................             91,108             112,146             276,917             310,802
   General and administrative ........             99,634              28,995             343,669              91,301
   General and administrative -
     affiliates ......................            151,035             165,682             483,169             486,630
                                              -----------         -----------         -----------         -----------
     Total expenses ..................          1,596,493           1,943,739           5,434,879           5,778,676
                                              -----------         -----------         -----------         -----------

Loss before extraordinary items ......           (289,471)           (246,814)           (129,284)           (794,889)
Extraordinary items ..................                 --                  --           1,816,152                  --
                                              -----------         -----------         -----------         -----------
Net income (loss) ....................        $  (289,471)        $  (246,814)        $ 1,686,868         $  (794,889)
                                              ===========         ===========         ===========         ===========

Net income (loss) allocable to:
   Current Income Unit ...............        $   (26,053)        $   (22,213)        $   151,818         $   (71,540)
   Growth/Shelter Unit ...............           (260,524)           (222,133)          1,518,181            (715,400)
   General Partner ...................             (2,894)             (2,468)             16,869              (7,949)
                                              -----------         -----------         -----------         -----------
Net income (loss) ....................        $  (289,471)        $  (246,814)        $ 1,686,868         $  (794,889)
                                              ===========         ===========         ===========         ===========

Net income (loss) per limited
   partnership unit:
   Current Income Unit Holders:
     Loss before extra-
       ordinary items ................              (1.04)               (.89)               (.46)              (2.87)
     Extraordinary items .............                 --                  --                6.57                  --
                                              -----------         -----------         -----------         -----------
     Net income (loss) ...............        $     (1.04)        $      (.89)        $      6.11         $     (2.87)
                                              ===========         ===========         ===========         ===========

   Growth/Shelter Unit Holders:
     Loss before extra-
       ordinary items ................             (11.80)             (10.02)              (5.27)             (32.25)
     Extraordinary items .............                 --                  --               74.01                  --
                                              -----------         -----------         -----------         -----------
     Net income (loss) ...............        $    (11.80)        $    (10.02)        $     68.74         $    (32.25)
                                              ===========         ===========         ===========         ===========
</TABLE>

The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>
                        McNEIL REAL ESTATE FUND XXI, L.P.

                         STATEMENTS OF PARTNERS' DEFICIT
                                   (Unaudited)

              For the Nine Months Ended September 30, 1998 and 1997

<TABLE>
<CAPTION>

                                                                                        Total
                                              General              Limited            Partners'
                                              Partner             Partners             Deficit
                                            ------------        ------------        ------------
<S>                                         <C>                 <C>                 <C>         
Balance at December 31, 1996........        $  (361,822)        $(4,059,156)        $(4,420,978)

Net loss
   General Partner .................             (7,949)                 --              (7,949)
   Current Income Units ............                 --             (71,540)            (71,540)
   Growth/Shelter Units ............                 --            (715,400)           (715,400)
                                            -----------         -----------         -----------
Total net loss .....................             (7,949)           (786,940)           (794,889)
                                            -----------         -----------         -----------

Balance at September 30, 1997 ......        $  (369,771)        $(4,846,096)        $(5,215,867)
                                            ===========         ===========         ===========


Balance at December 31, 1997 .......        $  (376,608)        $(5,522,974)        $(5,899,582)

Net income
   General Partner .................             16,869                  --              16,869
   Current Income Units ............                 --             151,818             151,818
   Growth/Shelter Units ............                 --           1,518,181           1,518,181
                                            -----------         -----------         -----------
Total net income ...................             16,869           1,669,999           1,686,868
                                            -----------         -----------         -----------

Balance at September 30, 1998 ......        $  (359,739)        $(3,852,975)        $(4,212,714)
                                            ===========         ===========         ===========
</TABLE>





The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>

                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                                                            Nine Months Ended
                                                                               September 30,
                                                                     --------------------------------
                                                                         1998               1997
                                                                     ------------        ------------

Cash flows from operating activities:
<S>                                                                  <C>                 <C>        
   Cash received from tenants ...............................        $ 4,427,771         $ 4,807,668
   Cash paid to suppliers ...................................         (1,845,421)         (1,938,994)
   Cash paid to affiliates ..................................           (234,298)           (248,889)
   Interest received ........................................             47,420              61,513
   Interest paid ............................................         (1,110,302)         (1,440,267)
   Interest paid to affiliates ..............................           (407,432)            (36,665)
   Property taxes paid ......................................           (419,753)           (420,636)
                                                                     -----------         -----------
Net cash provided by operating activities ...................            457,985             783,730
                                                                     -----------         -----------

Cash flows from investing activities:
   Additions to real estate investments .....................           (284,204)           (635,147)
   Net proceeds received from insurance
     company ................................................                 --             100,241
   Proceeds from disposition of real estate .................          3,698,365                  --
                                                                     -----------         -----------
Net cash provided by (used in) investing activities..........          3,414,161            (534,906)
                                                                     -----------         -----------

Cash flows from financing activities:
   Principal payments on mortgage notes
     payable ................................................           (171,491)           (199,874)
   Principal payments on mortgage notes
     payable - affiliate ....................................             (5,482)                 --
   Retirement of mortgage notes payable -
     affiliate ..............................................         (3,534,157)                 --
   Repayment of advances from affiliates ....................           (630,574)                 --
                                                                     -----------         -----------
Net cash used in financing activities .......................         (4,341,704)           (199,874)
                                                                     -----------         -----------

Net increase (decrease) in cash and
   cash equivalents .........................................           (469,558)             48,950

Cash and cash equivalents at beginning of
   period ...................................................          1,817,585           1,670,843
                                                                     -----------         -----------

Cash and cash equivalents at end of period ..................        $ 1,348,027         $ 1,719,793
                                                                     ===========         ===========
</TABLE>



The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>

                        McNEIL REAL ESTATE FUND XXI, L.P.

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

           Reconciliation of Net Income (Loss) to Net Cash Provided by
                              Operating Activities

<TABLE>
<CAPTION>

                                                                        Nine Months Ended
                                                                           September 30,
                                                                 --------------------------------
                                                                    1998                1997
                                                                 -----------         ------------
<S>                                                              <C>                 <C>         
Net income (loss) .......................................        $ 1,686,868         $  (794,889)
                                                                 -----------         -----------

Adjustments to reconcile net income (loss) to net
   cash provided by operating activities:
   Depreciation and amortization ........................          1,048,140           1,125,644
   Amortization of deferred borrowing costs .............             46,888              49,759
   Amortization of discounts on mortgage
     notes payable ......................................             15,666              14,872
   Accrued interest on advances from affiliates .........           (164,407)             44,622
   Gain on involuntary conversion .......................                 --             (66,655)
   Gain on sale of real estate ..........................           (863,350)                 --
   Extraordinary items ..................................         (1,816,152)                 --
   Changes in assets and liabilities:
     Cash segregated for security deposits ..............            (24,432)            (30,836)
     Accounts receivable ................................             85,750             (20,800)
     Escrow deposits ....................................             66,596             (91,158)
     Prepaid expenses and other assets ..................              4,819                 (77)
     Accounts payable and accrued expenses ..............            (30,009)              6,255
     Accrued property taxes .............................            (59,693)             42,062
     Payable to affiliates ..............................            477,350             489,913
     Security deposits and deferred rental
       revenue ..........................................            (16,049)             15,018
                                                                 -----------         -----------

       Total adjustments ................................         (1,228,883)          1,578,619
                                                                 -----------         -----------

Net cash provided by operating activities ...............        $   457,985         $   783,730
                                                                 ===========         ===========
</TABLE>






The  financial  information  included  herein has been  prepared  by  management
without audit by independent public accountants.

                 See accompanying notes to financial statements.
<PAGE>

                        McNEIL REAL ESTATE FUND XXI, L.P.

                          Notes to Financial Statements
                                   (Unaudited)

                               September 30, 1998

NOTE 1.
-------

McNeil  Real  Estate  Fund XXI,  L.P.  (the  "Partnership"),  formerly  known as
Southmark Realty Partners, Ltd., was organized on November 23, 1983 as a limited
partnership under the provisions of the California  Revised Limited  Partnership
Act to acquire and operate  commercial and residential  properties.  The general
partner of the Partnership is McNeil Partners,  L.P. (the "General Partner"),  a
Delaware limited partnership,  an affiliate of Robert A. McNeil ("McNeil").  The
principal place of business for the Partnership and the General Partner is 13760
Noel Road, Suite 600, LB70, Dallas, Texas, 75240.

In the opinion of management,  the financial  statements reflect all adjustments
necessary for a fair  presentation of the Partnership's  financial  position and
results  of  operations.  All  adjustments  were of a normal  recurring  nature.
However,  the results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results to be expected for the year ending
December 31, 1998.

NOTE 2.
-------

The  financial  statements  should  be read in  conjunction  with the  financial
statements  contained in the  Partnership's  Annual  Report on Form 10-K for the
year  ended  December  31,  1997,  and the  notes  thereto,  as  filed  with the
Securities and Exchange  Commission,  which is available upon request by writing
to McNeil Real Estate Fund XXI, L.P., c/o McNeil Real Estate  Management,  Inc.,
Investor Services, 13760 Noel Road, Suite 600, LB70, Dallas, Texas 75240.

NOTE 3.
-------

The  accompanying  financial  statements  have been  prepared  assuming that the
Partnership  will continue as a going concern.  The Partnership has had to defer
payment of payables to affiliates in order to meet its working capital needs.

On April 20, 1998, the Partnership sold Fort Meigs Plaza to a non-affiliate  for
$3.8 million. All cash proceeds,  after payment of selling costs and prorations,
were used to pay off the first and second  lien  mortgage  notes  secured by the
property (see Note 5).

The  Partnership  defaulted on the mortgage notes payable secured by Wise County
Plaza and the lender foreclosed on the property on May 29, 1998.  Foreclosure by
the lender has not had a significant  effect on the Partnership since all excess
cash flow of the  property was payable to the lender as  additional  interest on
the loans.





<PAGE>
The Partnership has no established  lines of credit from outside sources.  Other
possible actions to resolve cash deficiencies include refinancings,  deferral of
capital  expenditures on Partnership  properties  except where  improvements are
expected to increase the  competitiveness  and  marketability of the properties,
deferral of payables to or arranging financing from affiliates,  or the ultimate
sale of Partnership properties.

NOTE 4.
-------

The  Partnership  pays  property  management  fees  equal to 5% of gross  rental
receipts for its residential  properties and 6% of gross rental receipts for its
commercial  properties to McNeil Real Estate  Management,  Inc.  ("McREMI"),  an
affiliate of the General Partner, for providing property management services for
the Partnership's residential and commercial properties and leasing services for
its residential  properties.  McREMI may also choose to provide leasing services
for the Partnership's  commercial properties,  in which case McREMI will receive
property  management  fees from such  commercial  properties  equal to 3% of the
property's  gross  rental  receipts  plus  leasing   commissions  based  on  the
prevailing market rate for such services where the property is located.

The  Partnership  reimburses  McREMI  for  its  costs,  including  overhead,  of
administering the Partnership's  affairs.  Total accrued but unpaid  Partnership
general and administration fees of $1,381,779 and $1,171,406 were outstanding at
September 30, 1998 and December 31, 1997, respectively.

The  Partnership  is paying an asset  management  fee  which is  payable  to the
General  Partner.  Through 1999, the Asset Management Fee is calculated as 1% of
the  Partnership's  tangible asset value.  Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization  rate
of 9% to the annualized net operating income of each property or (ii) a value of
$10,000 per  apartment  unit for  residential  property and $50 per gross square
foot for commercial property to arrive at the property tangible asset value. The
property  tangible  asset  value is then  added to the book  value of all  other
assets excluding  intangible items. The fee percentage  decreases  subsequent to
1999.  Total  accrued  but  unpaid  asset  management  fees  of  $3,591,202  and
$3,318,406  were  outstanding  at  September  30, 1998 and  December  31,  1997,
respectively.

The Partnership pays a disposition fee to the General Partner equal to 3% of the
gross sales price for brokerage  services  performed in connection with the sale
of the Partnership's properties. The fee is due and payable at the time the sale
closes.  In connection with the sales of Suburban Plaza and Wyoming Mall,  total
accrued but unpaid  disposition  fees of $346,050 were  outstanding at September
30, 1998 and December 31, 1997. In connection with the sale of Fort Meigs Plaza,
the General  Partner waived its right to receive a disposition  fee, which would
have totaled $114,000.

Prior  to the  restructuring  of the  Partnership,  affiliates  of the  Original
General  Partner  advanced  funds to enable the  Partnership to meet its working
capital requirements. These advances were purchased by, and were payable to, the
General  Partner.  These advances  totaling  $630,574,  and accrued  interest of
$182,091, were repaid in full in April 1998.






<PAGE>
Compensation  and  reimbursements  paid to or  accrued  for the  benefit  of the
General Partner and its affiliates are as follows:

<TABLE>
<CAPTION>
                                                                   Nine Months Ended
                                                                      September 30,
                                                               ------------------------
                                                                 1998            1997
                                                               --------        --------

<S>                                                            <C>             <C>     
Property management fees ..............................        $228,479        $252,172
Charged to interest - affiliates:
   Interest on advances from affiliates ...............          17,684          44,622
   Interest on mortgage notes payable - affiliate .....         119,687          45,915
Charged to general and administrative -affiliates:
   Partnership administration .........................         210,373         189,549
   Asset management fee ...............................         272,796         297,081
                                                               --------        --------
                                                               $849,019        $829,339
                                                               ========        ========
</TABLE>

Payable to  affiliates  at September  30, 1998 and  December 31, 1997  consisted
primarily of unpaid asset management fees, property management fees, disposition
fees and partnership general and administrative  expenses and is due and payable
from current operations.

The mortgage  notes payable - affiliate  secured by Fort Meigs Plaza were repaid
in full when the property was sold in April 1998. See Note 5.

NOTE  5.
-------

On April 20,  1998,  the  Partnership  sold Fort Meigs  Plaza  Shopping  Center,
located in Perrysburg,  Ohio, to an  unaffiliated  purchaser for a cash purchase
price of  $3,800,000.  Cash  proceeds  from the sale,  after payment of prorated
rents and  property  taxes,  were used to repay the  mortgage  notes  payable to
McNeil Real Estate Fund XX, L.P.  ("Fund XX"), an affiliate.  Cash proceeds,  as
well as the gain on sale, are detailed below.

<TABLE>
<CAPTION>
                                                           Gain                  Cash
                                                          on Sale              Proceeds
                                                         ------------        ------------
<S>                                                      <C>                 <C>        
Sales price .....................................        $ 3,800,000         $ 3,800,000

Selling costs ...................................           (101,635)           (101,635)
Straight-line rents receivable written off ......            (28,979)
Prepaid leasing commissions written off .........            (10,048)
Carrying value ..................................         (2,795,988)
                                                         -----------         -----------

Gain on sale of real estate .....................        $   863,350
                                                         ===========

Proceeds from sale ..............................                              3,698,365

Prorated rents and property taxes paid at
   closing ......................................                                (83,012)

Retirement of mortgage notes payable to
   Fund XX and related accrued interest .........                             (3,615,353)
                                                                             -----------

Net cash proceeds ...............................                            $        --
                                                                             ===========
</TABLE>

<PAGE>
The Partnership  recognized a $190,437  extraordinary  gain on retirement of the
mortgage notes payable to Fund XX, as follows:

First lien mortgage note payable - affiliate.........    $ 2,990,694
Second lien mortgage note payable - affiliate........        733,900
Accrued interest payable.............................         81,196
                                                         -----------
   Total principal and interest payable to Fund XX...      3,805,790

Cash paid for repayment in full of principal and
   interest payable to Fund XX.......................     (3,615,353)
                                                         -----------

Extraordinary gain on retirement of mortgage
   notes payable - affiliate.........................    $   190,437
                                                         ===========

Under the terms of its partnership  agreement,  the Partnership  normally pays a
disposition  fee to the General Partner equal to 3% of the gross sales price for
brokerage  services  performed in connection with the sale of the  Partnership's
properties.  The  fee is due  and  payable  at the  time  the  sale  closes.  In
connection  with the sale of Fort Meigs Plaza,  the General  Partner  waived its
right to receive such fee, which would have totaled $114,000.

NOTE 6.
-------

The mortgage  notes  payable  secured by Wise County Plaza  matured on August 1,
1997 and the Partnership was unable to negotiate a modification and extension of
the loans. On May 29, 1998, Wise County Plaza was foreclosed on by the lender in
full  settlement  of the  mortgage  indebtedness  secured  by the  property.  In
connection with this  transaction,  the Partnership  recognized an extraordinary
gain on retirement of mortgage note payable as follows:


Estimated fair value of real estate..................    $  4,535,814

Accounts receivable written off......................         (61,910)
Prepaid expenses written off.........................         (10,855)
Accrued property taxes written off...................          20,335
Deferred rental revenue written off..................             750
Carrying value.......................................      (4,484,134)
                                                          -----------

   Gain on disposition...............................     $        --
                                                          ===========


Amount of mortgage note payable settled..............     $ 5,957,419
Amount of accrued interest payable settled...........         222,172
Escrow deposits applied..............................         (18,062)
Estimated fair value of real estate..................      (4,535,814)
                                                          -----------

Extraordinary gain on retirement of mortgage
   note payable......................................     $ 1,625,715
                                                          ===========


<PAGE>
NOTE 7.
-------

On July 12 and September 5, 1996,  Governour's Square Apartments suffered damage
from  two  separate  hurricanes.  Repairs  of  damages  totaling  $191,178  were
completed.  Reimbursements  for the repairs  totaling $40,937 were received from
the  insurance  carrier  in 1996,  and  $100,241  were  received  in  1997.  The
Partnership recognized a gain on involuntary conversion of $27,252 in the fourth
quarter of 1996 and $66,655 in the first nine months of 1997 when the  remaining
insurance  claims were  received.  The total gain on  involuntary  conversion of
$93,907  represents the insurance  claims in excess of the basis of the property
damaged by the hurricanes.

NOTE 8.
-------

James F.  Schofield,  Gerald C. Gillett,  Donna S. Gillett,  Jeffrey  Homburger,
Elizabeth Jung,  Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors,  Inc., McNeil Real Estate Management,  Inc., Robert A. McNeil,
Carole J. McNeil,  McNeil Pacific  Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX,  Ltd.,  McNeil Real  Estate  Fund X, Ltd.,  McNeil Real Estate Fund XI,
Ltd.,  McNeil  Real Estate Fund XII,  Ltd.,  McNeil Real Estate Fund XIV,  Ltd.,
McNeil Real Estate Fund XV, Ltd.,  McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P.,  McNeil Real Estate Fund XXII,  L.P.,  McNeil Real Estate
Fund XXIV,  L.P.,  McNeil Real Estate  Fund XXV,  L.P.,  McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII,  L.P., et al. - Superior Court of
the State of California for the County of Los Angeles,  Case No. BC133799 (Class
and Derivative Action Complaint).

The action involves  purported  class and derivative  actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the  "Partnerships").  Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management,  Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their  fiduciary  duties and certain  obligations  under the respective  Amended
Partnership Agreement. Plaintiffs allege that

Defendants have rendered such Units highly illiquid and  artificially  depressed
the prices that are available for Units on the resale  market.  Plaintiffs  also
allege that Defendants engaged in a course of conduct to prevent the acquisition
of Units by an  affiliate  of Carl  Icahn by  disseminating  purportedly  false,
misleading and inadequate information. Plaintiffs further allege that Defendants
acted  to  advance   their  own  personal   interests  at  the  expense  of  the
Partnerships' public unit holders by failing to sell Partnership  properties and
failing to make distributions to unitholders.

On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs  are suing for breach of  fiduciary  duty,  breach of contract and an
accounting,  alleging,  among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive,  that these fees should
be reduced retroactively and that the respective Amended Partnership  Agreements
governing the Partnerships are invalid.







<PAGE>
Defendants  filed a demurrer to the  consolidated  and amended  complaint  and a
motion to strike on February 14, 1997,  seeking to dismiss the  consolidated and
amended complaint in all respects.  A hearing on Defendant's demurrer and motion
to strike  was held on May 5,  1997.  The Court  granted  Defendants'  demurrer,
dismissing  the  consolidated  and  amended  complaint  with leave to amend.  On
October  31,  1997,  the  Plaintiffs  filed a second  consolidated  and  amended
complaint. The case was stayed pending settlement discussions.  A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties.  Preliminary
Court  approval  was  received  on  October 6,  1998.  A hearing on final  Court
approval is scheduled for December 17, 1998.

Plaintiff's  counsel  intend  to seek an  order  awarding  attorney's  fees  and
reimbursements  of their  out-of-pocket  expenses.  The  amount of such award is
undeterminable  until  final  approval  is  received  from the  court.  Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis,  based
upon  tangible  asset value of each such  partnership,  less total  liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------  ---------------------------------------------------------------
         RESULTS OF OPERATIONS
         ---------------------

FINANCIAL CONDITION
-------------------

Fort Meigs Plaza Shopping  Center was sold on April 20, 1998.  Wise County Plaza
Shopping Center was foreclosed on by the lender on May 29, 1998.  There has been
no significant  change in the  operations of the remainder of the  Partnership's
properties since December 31, 1997. The Partnership  reported net income for the
first nine  months of 1998 of  $1,686,868  as compared to a net loss of $794,889
for the first nine months of 1997. Revenues increased to $5,305,595 in 1998 from
$4,983,787  in  1997,  while  expenses  decreased  to  $5,434,879  in 1998  from
$5,778,676 in 1997. The Partnership recognized $1,816,152 in extraordinary gains
on retirement of mortgage  notes payable and mortgage  notes payable - affiliate
in the first nine months of 1998.

Net cash provided by operating activities was $457,985 for the first nine months
of 1998. The Partnership expended $284,204 for capital improvements and $176,973
for regularly  scheduled  principal  payments on its mortgage  notes payable and
mortgage notes payable - affiliate. The Partnership repaid $630,574 of principal
on advances from  affiliates.  The Partnership  received  $3,698,365 in proceeds
from the sale of Fort Meigs Plaza,  $3,534,157  of which was used to pay off the
principal of its mortgage  notes  payable - affiliate  secured by the  property.
Cash and cash  equivalents  decreased  by  $469,558  in the first nine months of
1998, leaving a balance of $1,348,027 at September 30, 1998.

The Partnership  has had little ready cash reserves since its inception.  It has
been largely  dependent on  affiliates  to support its  operations.  Although no
additional  advances from  affiliates were required during the first nine months
of 1998, at September 30, 1998 the  Partnership  owed payables to affiliates for
property management fees, Partnership general and administrative expenses, asset
management fees and disposition  fees totaling  $5,340,323.  Affiliate  advances
were repaid in full in April 1998.




<PAGE>
RESULTS OF OPERATIONS
---------------------

Revenue:

Total  revenue  decreased  by $389,903  for the three  months and  increased  by
$321,808  for the nine months ended  September  30, 1998 as compared to the same
periods in 1997.  The overall  increase was mainly due to a gain on sale of real
estate in the second quarter of 1998,  partially  offset by a decrease in rental
revenue, as discussed below.

Rental revenue for the three and nine months ended  September 30, 1998 decreased
by $341,293 and $460,794, respectively, as compared to the same periods in 1997.
Approximately  $629,000 of the decrease was  attributable  to the disposition of
Fort  Meigs  Plaza and Wise  County  Plaza in the second  quarter of 1998.  This
decrease was partially offset by increases of approximately  $75,000 and $46,000
at Evergreen  Square and Governour's  Square  apartments,  respectively.  Rental
revenue at Evergreen Square increased due to an increase in average occupancy in
the first nine months of 1998.  Rental revenue  increased at Governour's  Square
Apartments due to an increase in rental rates.

Interest  income  decreased  by $8,764 and $14,093 for the three and nine months
ended September 30, 1998, respectively, in relation to the comparable periods in
1997,  mainly due to a decline in the amount of cash  available  for  short-term
investment  in the third  quarter of 1998.  The  Partnership  held cash and cash
equivalents of  approximately  $1.3 million at September 30, 1998 as compared to
approximately $1.7 million at September 30, 1997. The decrease was mainly due to
the repayment of $812,665 of advances from affiliates in April 1998.

The Partnership recognized a $66,665 gain on involuntary conversion in the first
nine months of 1997,  $39,846 of which was  recognized  in the third  quarter of
1997,  related to hurricane damage suffered at Governour's  Square Apartments in
1996. The gain, which  represented the insurance  proceeds received in excess of
the basis of the property damaged, was recognized as reimbursement proceeds were
received from the insurance carrier. Additional hurricane damage was incurred in
1998.  However,  since no insurance  proceeds will be received,  an  involuntary
conversion was not  recognized.  The write off of the damaged basis was recorded
as a storm damage loss, as discussed below.

In the second quarter of 1998, the Partnership recognized a $863,350 gain on the
sale of Fort Meigs Plaza  Shopping  Center.  No such gain was  recognized in the
first half of 1997.

In the  second  quarter  of  1998,  the  Partnership  recognized  $1,816,152  in
extraordinary  gains.  The  Partnership   recognized  a  $190,437  gain  on  the
retirement  of the Fort Meigs Plaza  mortgage  notes  payable -  affiliate  as a
result of the sale of the property. The Partnership also recognized a $1,625,715
gain on retirement of the Wise County Plaza  mortgage  notes payable as a result
of the foreclosure of the property by the lender.

Expenses:

Total  expenses  decreased  by $347,246 for the three months and by $343,797 for
the nine months  ended  September  30,  1998 as compared to the same  periods in
1997. The decrease was mainly due to a decrease in interest  expense,  partially
offset by an increase  in general  and  administrative  expenses,  as  discussed
below.


<PAGE>
Interest  expense  for the  three  and nine  months  ended  September  30,  1998
decreased  by  $202,313  and  $411,002,  respectively,  as  compared to the same
periods  in 1997.  The  decrease  was  mainly due to the first lien loan on Fort
Meigs Plaza being  purchased by an affiliate in December 1997.  Interest on this
loan was recorded as interest  expense for the first eleven  months of 1997;  it
was recorded as interest -  affiliates  in 1998.  Also,  there was a decrease in
interest  expense relating to the Wise County Plaza loans due to the foreclosure
of the property by the lender in May 1998.

Interest -  affiliates  decreased  by $30,579 and  increased  by $46,834 for the
quarter and nine months ended September 30, 1998,  respectively,  as compared to
the same periods in the prior year. The overall  increase was due to interest on
the first lien loan secured by Fort Meigs Plaza being payable to an affiliate in
1998, as discussed  above.  This increase was partially  offset by a decrease in
affiliate  interest due to the April 1, 1998 payoff of the first and second lien
loans secured by Fort Meigs Plaza.

The  disposition of Fort Meigs Plaza and Wise County Plaza in the second quarter
of 1998 resulted in a decrease in property  taxes of $30,213 and $48,593 for the
three and nine months ended September 30, 1998, respectively.

General  and  administrative  expenses  for the  three  and  nine  months  ended
September 30, 1998 increased by $70,639 and $252,368,  respectively, as compared
to the same periods in 1997. The increase was primarily due to costs incurred in
1998 to explore  alternatives  to  maximize  the value of the  Partnership  (see
Liquidity and Capital Resources).

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

At  September  30,  1998,  the  Partnership  held cash and cash  equivalents  of
$1,348,027.

Cash of $457,985  was  provided by  operating  activities  during the first nine
months of 1998 as compared to $783,730  provided during the same period in 1997.
Cash received  from tenants and cash paid to suppliers  decreased as a result of
the sale of Fort Meigs  Plaza in April 1998 and the  foreclosure  of Wise County
Plaza in May 1998.  There was a decrease  in  interest  paid and an  increase in
interest  paid to  affiliates  in 1998,  partially due to the first lien loan on
Fort Meigs Plaza being held by an affiliate in 1998, as previously discussed. In
addition,  the  Partnership  paid $182,091 of accrued  interest on advances from
affiliates in the first nine months of 1998. The disposition of Fort Meigs Plaza
and Wise  County  Plaza in the second  quarter  of 1998  resulted  in  decreased
interest paid on the related loans. In addition,  the Partnership  ceased making
excess cash flow  payments on the Wise  County  Plaza loans in 1998,  which were
recorded as additional interest on the loans.

Cash used for  additions  to real estate  investments  totaled  $284,204 for the
first nine months of 1998 as compared to $635,147 for the same period in 1997. A
greater  amount  was  spent in 1997 for  exterior  upgrades  at  Bedford  Green,
Evergreen Square and Governour's  Square  apartments.  In addition,  landscaping
work was performed at Governour's  Square, the pool at Woodcreek  Apartments was
replastered and the parking lot at Wise County Plaza was paved in 1997.

In 1997,  the  Partnership  received  $100,241  in proceeds  from the  insurance
carrier for hurricane damage at Governour's  Square  Apartments in 1996. No such
proceeds were received in the first nine months of 1998.


<PAGE>
In  1998,  the  Partnership  repaid  $630,574  of  principal  on  advances  from
affiliates.  The  Partnership  received  $3,698,365 in proceeds from the sale of
Fort Meigs Plaza,  $3,534,157  of which was used to pay off the principal of its
mortgage notes payable - affiliate secured by the property.

Short-term liquidity

For  the  remainder  of  1998,  present  cash  balances  and  operations  of the
properties  are  expected  to  provide  sufficient  cash  for  normal  operating
expenses,  debt service payments and budgeted capital  improvements.  Fort Meigs
Plaza was sold to a non-affiliate  for $3.8 million in April 1998. There were no
net cash proceeds  arising from the sale as all cash proceeds,  after payment of
selling  costs and  prorations,  were used to pay off the first and second  lien
mortgage  notes secured by the property.  Wise County Plaza was foreclosed on by
the lender in May 1998.

The  Partnership  has no  established  lines of  credit  from  outside  sources.
Although  affiliates of the Partnership  have  previously  funded cash deficits,
there can be no assurance the Partnership will receive  additional funds.  Other
possible actions to resolve cash  deficiencies  include  refinancing,  deferring
major capital or repair  expenditures  on  Partnership  properties  except where
improvements are expected to enhance the  competitiveness  and  marketability of
the properties,  deferring payables to or arranging financing from affiliates or
the ultimate sale of Partnership properties.

Long-term liquidity

As previously announced, the Partnership has retained PaineWebber,  Incorporated
("PaineWebber")  as its exclusive  financial advisor to explore  alternatives to
maximize  the  value  of  the  Partnership  including,   without  limitation,  a
transaction  in which  limited  partnership  interests  in the  Partnership  are
converted  into  cash.  The  Partnership,   through  PaineWebber,  has  provided
financial  and  other  information  to  interested   parties  and  is  currently
conducting  discussions  with one such party in an attempt to reach a definitive
agreement  with respect to a sale  transaction.  It is possible that the General
Partner  and its  affiliates  will  receive  non-cash  consideration  for  their
ownership  interests in connection  with any such  transaction.  There can be no
assurance that any such agreement will be reached nor the terms thereof.

Operations of the  Partnership's  properties are expected to provide  sufficient
cash flow for operating expenses, debt service payments and capital improvements
in the foreseeable future.

Excluding the gain on sale of real estate and extraordinary  gains on retirement
of  mortgage  notes  payable  and  mortgage  notes  payable  -  affiliate,   the
Partnership  reported  a net loss  from  operations  for the nine  months  ended
September 30, 1998.  In addition,  the  Partnership  has had to defer payment of
payables  to  affiliates  in order  to meet its  working  capital  needs.  These
conditions raise substantial  doubt about the Partnership's  ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.








<PAGE>
Distributions

To maintain adequate cash balances of the Partnership,  distributions to Current
Income Unit holders were suspended in 1989.  There have been no distributions to
Growth/Shelter  Units  holders.   Distributions  to  Unit  holders  will  remain
suspended  for the  foreseeable  future.  The General  Partner will  continue to
monitor  the cash  reserves  and working  capital  needs of the  Partnership  to
determine when cash flows will support distributions to the Unit holders.

Forward-Looking Information

Within this document,  certain  statements are made as to the expected occupancy
trends,  financial  condition,  results  of  operations,  and cash  flows of the
Partnership  for periods after  September 30, 1998. All of these  statements are
forward-looking  statements  made pursuant to the safe harbor  provisions of the
Private  Securities  Litigation  Reform Act of 1995.  These  statements  are not
historical  and  involve  risks  and  uncertainties.  The  Partnership's  actual
occupancy trends, financial condition, results of operations, and cash flows for
future  periods may differ  materially  due to several  factors.  These  factors
include,  but are not limited to, the  Partnership's  ability to control  costs,
make necessary  capital  improvements,  negotiate  sales or  refinancings of its
properties, and respond to changing economic and competitive factors.

Other Information:

Management has reviewed its information  technology  infrastructure  to identify
any  systems  that could be  affected  by the year 2000  problem.  The year 2000
problem is the result of computer programs being written using two digits rather
than four to define the applicable  year. Any programs that have  time-sensitive
software  may  recognize a date using "00" as the year 1900 rather than the year
2000.  This  could  result in major  systems  failure  or  miscalculations.  The
information  systems  used  by  the  Partnership  for  financial  reporting  and
significant  accounting  functions were made year 2000  compliant  during recent
systems conversions.

Management  is  in  the  process  of  evaluating  the  mechanical  and  embedded
technological systems at the various properties. Management intends to inventory
all such systems and query  suppliers,  vendors and  manufacturers  to determine
year 2000 compliance.  In circumstances of  non-compliance  management will work
with the vendor to remedy the problem or seek alternative  suppliers who will be
in compliance.  Management believes that the remediation of any outstanding year
2000  conversion  issues  will not have a  material  or  adverse  effect  on the
Partnership's operations.  However, no estimates can be made as to the potential
adverse impact  resulting from the failure of third party service  providers and
vendors to be year 2000  compliant.  Management is in the process of identifying
those risks as well as  developing  a  contingency  plan to  mitigate  potential
adverse effects from non-compliance.


<PAGE>
                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
-------  -----------------

James F.  Schofield,  Gerald C. Gillett,  Donna S. Gillett,  Jeffrey  Homburger,
Elizabeth Jung,  Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors,  Inc., McNeil Real Estate Management,  Inc., Robert A. McNeil,
Carole J. McNeil,  McNeil Pacific  Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX,  Ltd.,  McNeil Real  Estate  Fund X, Ltd.,  McNeil Real Estate Fund XI,
Ltd.,  McNeil  Real Estate Fund XII,  Ltd.,  McNeil Real Estate Fund XIV,  Ltd.,
McNeil Real Estate Fund XV, Ltd.,  McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P.,  McNeil Real Estate Fund XXII,  L.P.,  McNeil Real Estate
Fund XXIV,  L.P.,  McNeil Real Estate  Fund XXV,  L.P.,  McNeil Real Estate Fund
XXVI, L.P., and McNeil Real Estate Fund XXVII,  L.P., et al. - Superior Court of
the State of California for the County of Los Angeles,  Case No. BC133799 (Class
and Derivative Action Complaint).

The action involves  purported  class and derivative  actions brought by limited
partners of each of the fourteen limited partnerships that were named as nominal
defendants as listed above (the  "Partnerships").  Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management,  Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their  fiduciary  duties and certain  obligations  under the respective  Amended
Partnership  Agreement.  Plaintiffs  allege that  Defendants  have rendered such
Units highly illiquid and  artificially  depressed the prices that are available
for Units on the resale market.  Plaintiffs also allege that Defendants  engaged
in a course of conduct to prevent the  acquisition  of Units by an  affiliate of
Carl  Icahn  by  disseminating  purportedly  false,  misleading  and  inadequate
information.  Plaintiffs  further allege that Defendants  acted to advance their
own personal  interests at the expense of the Partnerships'  public unit holders
by failing to sell Partnership  properties and failing to make  distributions to
unitholders.

On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs  are suing for breach of  fiduciary  duty,  breach of contract and an
accounting,  alleging,  among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive,  that these fees should
be reduced retroactively and that the respective Amended Partnership  Agreements
governing the Partnerships are invalid.

Defendants  filed a demurrer to the  consolidated  and amended  complaint  and a
motion to strike on February 14, 1997,  seeking to dismiss the  consolidated and
amended complaint in all respects.  A hearing on Defendant's demurrer and motion
to strike  was held on May 5,  1997.  The Court  granted  Defendants'  demurrer,
dismissing  the  consolidated  and  amended  complaint  with leave to amend.  On
October  31,  1997,  the  Plaintiffs  filed a second  consolidated  and  amended
complaint. The case was stayed pending settlement discussions.  A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties.  Preliminary
Court  approval  was  received  on  October 6,  1998.  A hearing on final  Court
approval is scheduled for December 17, 1998.

Plaintiff's  counsel  intend  to seek an  order  awarding  attorney's  fees  and
reimbursements  of their  out-of-pocket  expenses.  The  amount of such award is
undeterminable  until  final  approval  is  received  from the  court.  Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis,  based
upon  tangible  asset value of each such  partnership,  less total  liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.


<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
-------  ---------------------------------

(a)      Exhibits.

         Exhibit
         Number                     Description
         -------                    -----------

         4.                         Amended and  Restated  Limited   Partnership
                                    Agreement     dated    March    26,    1992.
                                    (Incorporated  by  reference  to the Current
                                    Report of the  Registrant  on Form 8-K dated
                                    March 26, 1992, as filed on April 9, 1992).

         11.                        Statement  regarding   computation   of  Net
                                    Income (Loss) per Limited  Partnership Unit:
                                    Net income  (loss) per  limited  partnership
                                    unit is  computed  by  dividing  net  income
                                    (loss)  allocated to the limited partners by
                                    the  weighted   average  number  of  limited
                                    partnership  units  outstanding.   Per  unit
                                    information   has  been  computed  based  on
                                    24,863  and  24,906   Current  Income  Units
                                    outstanding in 1998 and 1997,  respectively,
                                    and 22,085 and 22,180  Growth/Shelter  Units
                                    outstanding in 1998 and 1997, respectively.

         27.                        Financial  Data    Schedule  for the quarter
                                    ended September 30, 1998.


(b)      Reports on Form  8-K.  There  were  no reports on Form 8-K filed during
         the quarter ended September 30, 1998.



<PAGE>



                        MCNEIL REAL ESTATE FUND XXI, L.P.

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized:



                             McNEIL REAL ESTATE FUND XXI, L.P.

                             By:  McNeil Partners, L.P., General Partner

                                  By: McNeil Investors, Inc., General Partner






November 16, 1998                 By: /s/  Ron K. Taylor
-----------------                    -------------------------------------------

Date                                  Ron K. Taylor
                                      President and Director of McNeil 
                                       Investors, Inc.
                                      (Principal Financial Officer)




November 16, 1998                 By: /s/  Carol A. Fahs
-----------------                    -------------------------------------------
Date                                  Carol A. Fahs
                                      Vice President of McNeil Investors, Inc.
                                      (Principal Accounting Officer)